While our year-end newsletter is still a month away, the recent surge in investor fear—fueled by authors like Andrew Ross Sorkin with his new book “1929” and sensationalist media—calls for a reality check and a dose of behavioral vitamin C!
What Is a Bubble?
A bubble isn't just about high stock valuations or intense speculation in one sector. Multi-year strong market returns or widespread belief in a bubble do not, by themselves, mean we are in one. True bubbles go beyond these factors.
Why We Are Not in a Bubble.
Current market conditions do not support the idea of a bubble. Both the latest CNN Fear & Greed Index and the American Association of Individual Investors (AAII) Sentiment Survey confirm that the prevailing investor mood is at extreme levels of pessimism (extremely bearish). Purchases of stock funds have slowed, while commitments to bond funds are up. In real bubbles, money floods into stocks fueled by unbridled optimism, IPOs abound, and euphoria replaces caution. Today, the opposite is true: skepticism and fear dominate, especially regarding artificial intelligence companies and their valuations. This prevailing mood makes a bubble highly unlikely.
True market manias—those rare moments when a culture-wide frenzy overtakes most savers and investors—are exceptionally rare. In the past century, only three periods truly qualify as bubbles: the run-up from 1927 to 1929, the “go-go” era of 1965 to 1968, and the internet mania spanning 1997 to 2000. What distinguishes these periods is not just market performance, but the dominance of the market in everyday conversation—when it seems that everyone is investing, and, crucially, everyone appears to be making more money than you. Euphoria, defined as a complete loss of an adult sense of risk, overtakes rational caution, which is replaced by the fear of missing out (FOMO).
“"People start being interested in something because it is going up, not because they understand it. But the guy next door, who they know is dumber than they are, is getting rich and they aren’t.”
~Warren E. Buffet
Among the most telling signs of a bubble is when people stop questioning whether one exists and fear is replaced by unbridled optimism. When market sentiment is dominated by fear and skepticism—as is currently the case, especially in discussions around artificial intelligence companies, it is highly unlikely that a bubble is present. The prevailing mood of fear and skepticism stands in sharp contrast to the euphoria that characterizes true bubbles.
What About All the Chatter of Another 1929 Around the Corner?
Let’s examine the parallels between today’s market and 1929. About 5% of the US population owned stocks in 1929 (roughly 6 million), compared to about 60% today (around 200 million). Back then, investors could buy stocks with only 10% down (borrowing 90%), while current Regulation T restricts borrowing to 50%. There were no SEC, FDIC insurance, or circuit breakers (brief trading pauses to curb panic selling) in 1929, and most investment was in individual stocks with high leverage—margin loans were $8.5 billion, greater than the total US currency in circulation. Today, margin debt is about $1.2 trillion, about half the estimated value of US currency in circulation.
The Federal Reserve’s inaction in 1929 led to thousands of bank failures, a 30% drop in money supply, and severe deflation and unemployment. While some compare today’s tariffs to those of the Smoot-Hawley (1930 law raising tariffs on imports) era, today’s diversified global trade environment and systemic safeguards make a 1930-style collapse far less likely.
I can go on like this for hours and while anything is possible, another 1929 is not only highly unlikely but, to me, believing that one may be around the corner borders on the absurd.
Back To Reality – We Continue To be In the Midst Of Two Healthy Bull Markets
The cyclical (short-term) recovery that began at the end of the 2022 (cyclical – Short/shallow) bear market -- S&P 500 at 3,577.03 on October 12, 2022 – is entering its fourth year. Since 1957, these (cyclical/short-term) bull markets have lasted about 5 years, on average, and have returned an average of 184%. So far, having just celebrated its fourth birthday, the first of the two bull markets I am writing about has earned about 85%, this bull may well be in its early stages.
If this bull has an average life and an average return of 184%, the S&P would exceed 10,000 by the end of 2027 – don’t bet on it, don’t bet against it…..just stay on plan knowing that the defining characteristic of the future is that there are no facts about it and we will always be here to ensure that you continue to be able to act rationally when faced with making money decisions under uncertainty.
The current secular (long-term) bull market, which is the third one in history, began in 2009. These bull markets typically last about 20 years, so we are likely to still have 5 more years or so of strong returns before this longest and strongest of secular bulls peters out.
So why has the market kept climbing? It’s simple. The S&P 500 is set to have record high aggregate earnings for the full calendar year 2025. The net profit margin for the S&P 500 for 2025 is 13% -- the highest annual net profit margin since FactSet (a global provider of financial data for investment professionals) began tracking the metric in 2008! This follows a trend of strong performance, with the third quarter of 2025 marking the fourth consecutive quarter of double-digit earnings growth for the S&P. The strong results have been driven by factors including resilient corporate performance, continued consumer spending, the boom in Artificial Intelligence (AI) investment, and improved international sales. Bubble talk, depression talk, politics, government shutdowns and everything else is the noise and EARNINGS is the SIGNAL!
Without meaning to pile on, in an economy where consumer spending drives two-thirds of activity, household net worth is brushing up against $170 trillion --near all-time highs reached last quarter – while household debt as a percentage of disposable income is near historic lows. If this is 1929 redux, its happening while most are wearing designer shoes and checking their portfolio on their smartphone.
“In every age everybody knows that up to his own time, progressive improvement has been taking place;nobody seems to reckon on any improvement in the next generation. We cannot absolutely prove that those are in error who say society has reached a turning point – that we have seen our best days.But so said all who came before us and with just as much apparent reason. ... On what principle is it that with nothing but improvement behind us, we are to expect nothing but deterioration before us?”what principle is it that with nothing but improvement behind us, we are to expect nothing but deterioration before us?"
~Thomas Babington Macaulay, Circa 1835
